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USING CSR AS A BUSINESS OPPORTUNITY MODEL FOR SME'S


Introduction CSR and SME’s

The business world is increasingly under pressure to demonstrate responsible business practises. Whilst many of the practises come under legal compliance, for example environmental legislation, companies are encouraged to go that extra mile and go beyond their daily business practises. In order to remain competitive in today’s fierce business environment, companies need to be able to adapt to new demands from both the market they operate in and society. In layman’s terms, CSR is therefore about how companies manage their business activities in a positive way.

Traditionally, CSR has been associated with big companies; however, SME’s now need to follow in the same way. Though SME’s are rarely in the limelight and many have not made a significant impact themselves as much as the bigger companies, they make up a significant part of the UK as well contribute to the European economy and society. For example, at the start of 2004 SME’s accounted for 99% of all UK enterprises and more than half of employment and turnover. (Business Ethics: A European Review, vol. 18, Iss. 1, (2009) p.22)

Taking into account the significant scale of these small businesses that contribute in every economy, their business achievements have a major effect globally. Researchers in the field of CSR recognise the key importance of ethical business and social responsibility in small businesses.

A stigma has been attached traditionally to SME’s not being entrepreneurial in CSR practises, and yet they do have the potential to maximise their business benefits from using CSR as a main strategic framework in their businesses.

SME’s are often perceived as having a personalised style of management and a lack of formal management structures. Though these traits vary depending on the individuals and the ownership structure of the company, this will therefore influence the firm’s method of embedding corporate social responsibility.

The most common type of SME is the owner-managed SME where control and ownership take centre stage with the same person. Their decisions such as CSR related issues allow them to pursue the concept in an autocratic manner.

The manager of a SME company may be in charge of multiple tasks simultaneously and his/her awareness of issues beyond the daily running of the firm could be possibly low. It has been known that SME’s can be quite challenging to regulate as they are enthusiastic to adopt voluntary regulation but are also against bureaucratic procedures due to the fact it always involves time and money.

Moreover, SME’s can also become very adaptive to change by swiftly adjusting their trading capacities. By having this flexibility in place, SME’s can possibly take advantage of niche markets or ‘blue oceans’ for products and services that link with either social or environmental benefits.

Evidence suggests that the majority of SME’s believe that organisations like themselves should pay significant attention to their social and environmental responsibilities (Southwell, (2004) cited by Business Ethics (2009)). SME’s play an important role when it comes to investments in social capital that can aid common issues in society; but they tend to not reflect their own social responsible practises as they are more frequently inspired by their own personal beliefs and not business reasons.

Competitive Advantage

CSR should not be seen as a business threat and a burden to small companies, rather is could be a useful tool with regards to competitive advantage. American theorist Michael Porter mentions that competitive advantage originates from many discrete activities a company performs when designing, producing, marketing, supporting, and delivering a product. Therefore these components can contribute to a company’s cost position and create a base for product differentiation.  Linking Porter with CSR, a cost position as he mentions can be seen as adding value to a business through innovation, this would be very useful for SME’s as this would set them apart from their rivalled competitors.

Competitive advantage for SME managers, particularly owner-managed small enterprises do not necessarily have to be directly linked with increased profits, but should primarily focus on supplying added value for their customers through increasing CSO’s. (Corporate Social Opportunities)

The authors Grayson & Hodges (2004) who wrote the book ‘Corporate Social Opportunity’ define corporate social opportunities as “Commercially viable activities which also advance environmental and social sustainability...The goal is to be able to create an environment where numerous CSOs are possible. (Grayson & Hodges, (2004) p.11)

Competitive advantage is a vital element of CSO. Businesses whether they are large or small can gain a competitive advantage by capitalising on the CSO’s offered by the concept of CSR.

Large firms that use CSR as one of their business strategies are not dissimilar to owner-managers trying to improve their company’s competiveness and product differentiation; however, the approach will be different in SME’s.  


SME Case Study

A recent study that looked at 24 British SME’s, all 24 companies that were involved had won awards and were handpicked because their CSR activities stood out from other SME businesses. All the companies that participated in the study found business reasons for implementing CSR and realised the potential benefits. The study revealed that the majority of the SME’s could explain why Corporate Social Responsibility was useful for their business. Interview responses indicated that having an internal drive for the concept rather than external pressure was their main cause of motivation for corporate social responsibility. The listed benefits that were common during the study revealed that improving image, reputation, better market position, employee reputation, and increased efficiency were all common themes when the SME’s were asked to identify their reasons for establishing CSR in their businesses.

However, some of the SME’s were uncomfortable with the notion of promoting their CSR practises. To them, it was perceived as a ‘big business’ idea and there was an assumption that these large companies only participate in CSR solely for the PR benefits.

Some of the companies did not feel comfortable about boasting about their CSR strategies as they were primarily undertaken for moral and not business reasons.

It is very unlikely that these small firms or SME’s in general employ individuals in PR or marketing based positions and therefore may not want to promote their ‘good works’ from their CSR practises as they feel this could be seen as commercial exploitation. It should be noted that this discomfort as many of the SME’s described, did not transfer to the notion of encouraging other businesses to participate in CSR; the majority of companies were very happy to promote the concept and influence others to become more environmentally and socially responsible. It was revealed that distinguishing the promotional side of CSR for the benefit of a firm and also promoting a wider scope of the concept is an important lesson that has been learnt on how to engage SME’s into corporate social responsibility.

Going back to the term ‘CSO’, the question remains is how can a CSO be achieved and what are its characteristics? Grayson & Hodges (2004) believe that “the answer lies in achieving alignment of business values, purpose and strategy with the social and economic needs of customers and consumers, while embedding responsible and ethical business policies and practises throughout the company.” (Grayson & Hodges (2004) p.13)

There are growing amount of companies that are strongly committed to people, wisdom and service.

These are businesses that are highly performing due to the fact that their commercial successes branches out of their commitment to values and ethics. It is vital for any company to develop an understanding of corporate responsibility and to put these practises into action.

The first step in building a steady foundation with regards to having a CSO mind set is to create a set of values and principles for the business. For example, adopting the principle of respecting and valuing work colleagues, in CSR terms, improving work relations and providing good training and development opportunities in the company.

An example, from the mentioned SME study, companies were asked about their principles behind their business. One London based company had a philosophy that was built on five principles- openness, integrity, humanity, diligence, and enthusiasm.  Everything that the company did was linked to these five key principles; this is one example of how to underpin core motivating principles with the company’s overall business strategy.

With regards to SME’s, the owner-manager is most of the time the driver and implementer when it comes to values. Values as well as profit making are important considerations in the way in which new ideas are generated and competitive advantage is to be seen.

In the SME study, the owner-manager was directly in control of the CSR activities at the company by moulding their values and principles into the company culture. All the SME’s that took part in the study stated that their values were a major contributor to the way ethics and standards were integrated into their businesses.  This also contributed to their CSR successes as the companies truly believed and were passionate about aligning ethical business with their daily routines.

With this positivity from the study that many of these firms are aligning responsible business with their daily working environments, SME’s have an advantage of sharing their learning environment and by doing this there should be less communication barriers when sharing their knowledge about CSR based activities.

Going back to competitive advantage, SME’s experience both advantages and disadvantages. A common perceived disadvantage is that these small enterprises lack managerial resources and this can lead to poorly managed practises.

Much has been documented about minimal resources of smaller companies and the effects it has on their ability to get a firm grip on the notion of corporate social responsibility. In contrast there are numerous positives that SME’s have to help combat these limitations and for them to realise their potential from using CSR.

SME’s are flexible and can therefore respond to change quite quickly. For example, SME’s may be able to enter new niche markets for products and services that link to social and environmental benefits at a rapid rate. Furthermore, small enterprises are creative and also innovative, which can be influenced in the way they conduct CSR.

Another positive that should be noted is that the owner-manager is very close to the company and can influence the culture and values of the business by aligning CSR practises. In addition, communications in SME businesses are known to be more open, which allows these company values to be set in stone across the entire organisation.

An essential part of profiting from the opportunities that CSR can bring is to create a business strategy that aligns with the company’s goals. In an owner-managed SME, the way in which CSR takes place depends solely on the manager’s personal values. In contrast, small enterprises have been known not to link this with their overall strategy (for example, the direction of the organisation) and fail to gain a competitive edge from it.

Going back to the study, some of the companies did not undertake the concept because of business reasons; rather, they were motivated by responsible business for moral reasons plus the perceived values of the owner-manager. Moreover, some of the companies did recognise the potential CSR can have with regards to competitive advantage and started to align the concept and business strategy closely.

A strategic format for SME’s that incorporate corporate social responsibility should include:

  1. A change agent, change processes should be steered by the owner-manager, alternatively they can be delegated to a group of employees with the support of the senior managers.
  1. External networks - having the willingness to take on board external knowledge sources are important in order to access all the information and skills that are needed to drive a company’s CSR campaign forward.
  1. Internal networks - obtaining new knowledge on the concepts of CSR.
  1. Flexibility - SME’s have a great advantage in terms of being able to respond more quickly to changes in the market.
  1. Innovation - Innovation to SME’s is essential as this can drive ideas forward and does not necessarily involve adopted new technology or the need to introduce new products or services.

An example of innovation in a SME organisation can be seen from a printing company that is based in the East Midlands. The company who employs 39 members of staff needed more flexibility of skills from its employees. The printing company put together an innovative work-life balance policy as well as implementing a people policy which helped their employees develop their skills by offering training. Since creating this CSR based scheme, the printing company has now 26 work patterns for 39 employees.

  1. Competitive advantage - this may or may not relate solely to making increased profits with regards to their strategy.

For example, a Scottish recycling company had a core vision based on environmental education by having a profound impact on the environment and society by making recycling more easy. For this recycling company, CSR is viewed as something ‘you build into your business’,  furthermore they see the concept as pulling lots of components together into a coherent strategy. Some of the strategies at this SME include:

  • The company has recognised the potential in entering new markets that are linked to recycled and recovered products and is open to change when a new market opens up.
  • The Scottish company has developed innovative collection programmes and provides revenue streams for local charities, schools, and community groups.
  • It has profited on the CSO presented by recycling, recovery and environmental education and has therefore maintained a competitive advantage.  The company has become a fast growth company and an international leader in CSR by adopting strong social and environmental values in its every day practises.


Conclusion

In conclusion, developing a company CSR strategy is something that a majority of SME’s think might be challenging, but once they embrace the mindset only a few of these small enterprises studied found this to be the case.

Furthermore, these successful SME’s that created a CSR strategy stated that corporate social responsibility had to be pursued into all aspects of the business and not be perceived as a costly externality; CSR is therefore about creating new business paradigms. By adding social responsibility at heart of everyday business activities, the concept becomes less of an added feature and more of ‘this is how we do things’ approach. In order to sustain such strategy, certain organisational capabilities, such as education, networking, and being innovative, are all necessary components.

This area is important, especially for policy makers can provide training that envisages a supportive framework that harnesses an innovative environment where small enterprises can learn and exchange ideas with one another in order to develop strategies that focus on corporate social responsibility.  However, quite a few SME’s may be unlikely to report externally with regards to their CSR performances. They are likely to produce key performance indicators (KPI’s) from which they can use as a learning tool to improve CSR and business performance. The companies that do not produce external reports/KPI’s or benchmark themselves (for example entering award schemes) could find this as having a competitive advantage.

The companies in the study that had taken this approach found that it helped them to make sense of their CSR practises. From doing so, strategies and policies began to emerge from their findings. In addition, it also helps these companies raise their external image and improve their position in the market. In order for this to function, policy makers need to provide support for SMEs to evaluate on their CSR activities.

This model allows the likes of SME’s to build a concrete strategy from simply learning and networking, a strategy that many companies adopted from the study. Research suggests that all companies could use this model of learning and networking to realise CSO’s, but it is also imperative to have a ‘can do attitude’ in place to make the most of fostering CSR into the business.

Dave Dhanoo
Dave is currently working with ORB as a Work Experience Intern, whilst studying for an MSc in Marketing Management. He has an interest in CSR and intends to complete his dissertation on this subject.


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